Europe’s Downgrade – Our Thoughts – Comments from El-Erian

We were expecting it, but the market still reacted and it’s front page news.

How is it that France and some other Euro countries had a higher credit rating than the U.S., especially considering all of the issues in Europe?

The answer to this question finally came.  The downgrade that, in our minds, should have come a while ago happened.

What will it bring for the future?

It is too early to tell, but the rating agency S&P is now more formally suggesting that the path forward is more uncertain.

If the Euro area crisis shows signs of a resolution, we could see risk assets (equities, etc.) jump quite dramatically.  If we do not, however (other news of a potential breakdown in talks between Greece and its creditors is not a good sign), we could be in a period of “Sub-Normal” for some time.

What to do?

We suggest revisiting your allocations to make sure you are positioned for multiple outcomes.  Have funds that will benefit from surprises to the upside and others that will protect on the downside.  In our minds, it is not a time to be a hero.  Remain well diverisifed and make sure you are investing for your goals, not the goals of others (investing should not be a competition).

For a well written, more formal commentary on the downgrades, consider taking a look at a Blog on CNBC from Mohamed El-Erian of PIMCO.  While he ends on what could be considered a bearish note to which we do not wholly subscribe, we feel it is important to understand views from professionals and firms that can influence the market.

Mohamed El-Erian – CNBC Blog

Please check our Idea Flow section for more links to some of the research and commentary we find useful.

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